TAILIEUCHUNG - Lecture Financial markets and institutions: Chapter 19 - Anthony Saunders, Marcia Millon Cornett

Chapter 19 - Types of risks incurred by financial institutions. This chapter provided an overview of the major risks that modern FIs face. FIs face interest rate risk when the maturities of their assets and liabilities are mismatched. They incur market risk for their trading portfolios of assets and liabilities if adverse movements in the prices of these assets or liabilities occur. | 8- McGraw-Hill/Irwin Chapter Nineteen Types of Risks Incurred by Financial Institutions 19- McGraw-Hill/Irwin Risks at Financial Institutions One of the major objectives of a financial institution’s (FI’s) managers is to increase the FI’s returns for its owners Increased returns often come at the cost of increased risk, which comes in many forms: credit risk – foreign exchange risk liquidity risk – country or sovereign risk interest rate risk – technology risk market risk – operational risk off-balance-sheet risk – insolvency risk 19- McGraw-Hill/Irwin Risks at Financial Institutions Credit risk is the risk that the promised cash flows from loans and securities held by FIs may not be paid in full FIs that make loans or buy bonds with long maturities are relatively more exposed to credit risk thus, banks, thrifts, and insurance companies are more exposed than MMMFs and property-casualty insurance companies many financial claims issued by individuals or corporations have: limited upside return with a high probability large downside risk with a low probability a key role of FIs involves screening and monitoring loan applicants to ensure only the creditworthy receive loans FIs also charge interest rates commensurate with the riskiness of the borrower 19- McGraw-Hill/Irwin Risks at Financial Institutions Credit risk (cont.) the effects of credit risk are evidenced by charge-offs the Bankruptcy Reform Act of 2005 makes it more difficult for consumers to declare bankruptcy FIs can diversify away some individual firm-specific credit risk, but not systematic credit risk firm-specific credit risk is the risk of default for the borrowing firm associated with the specific types of project risk taken by that firm systematic credit risk is the risk of default associated with general economy-wide or macroeconomic conditions affecting all borrowers 19- McGraw-Hill/Irwin Risks at Financial Institutions Liquidity risk is the risk that a sudden and

• Tài chính doanh nghiệp
• Financial markets
• Financial institutions
• Lecture Financial markets and institutions
• Financial institutions markets
• Risks at financial institutions
• Market risk
• Lecture Financial markets
• Thị trường tài chính
• Financial futures markets
• Valuation of financial futures
• Interest rate futures
• Capital markets
• Money markets
• Derivative securities markets
• Futures markets
• Option markets
• Swap markets
• Foreign exchange derivative markets
• Bank management
• Types of Financial Markets
• Securities traded
• Valuation of securities
• Money market yields
• Bond markets
• Municipal bonds
• Mortgage markets
• Primary mortgage market
• Stock markets
• Common stock
• Foreign exchange markets
• Foreign exchange
• Commercial banks
• Financial statements
• Exchange rates
• Economics 252
• Efficient markets
• Excess volatility
• Efficient Markets Hypothesis
• Interest rate derivative markets
• Interest rate swaps
• Mortgage backed securities
• Globalization of mortgage markets
• Financial markets and institutions
• The financial system
• Interest rates change
• Financial markets efficient
• Term structure affect interest rates
• The stock market
• The mortgage markets
• The international financial system
• Financial regulation
• Interest rate fundamentals
• Interest rates
• Security valuation